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Notions of Fairness in Debt Restructuring

The paper examines the way in which loss is distributed amongst stakeholders in corporate restructuring in English law, against what might loosely be called notions of fairness. As the paper will show, our instinct may be that some of the results which are identified are “unfair”. This article seeks to critically examine this intuition. In other work the author has suggested that the way of thinking about fairness issues when multiple types of creditor are implicated (financial creditors, tax authorities, pension trustees, trade creditors, employees and tort creditors) may not translate seamlessly to certain modern situations in large corporates or financial institutions where only the claims of financial creditors are compromised. The paper seeks to give substance to that suggestion.

The analysis concentrates exclusively on the “fairness” analysis. It does not consider the trade-off between fairness and other objectives (such as sustaining the putatively unfair situation because another, fairer outcome would cost more than the benefits it would deliver, or would provide the wrong incentives for some of the stakeholders, or would make the stakeholders worse off overall even if it benefited some individual creditors), or with arguments that what we might consider to be questions of fairness might equally well be explored as economic questions. In short, its objective is not to argue that fairness should prevail over other considerations, but rather to explore, as an initial question, the quality of fairness in each of the situations with which it is concerned.